Mutual fund story — it’s just the beginning

Participation in mutual funds is slowly percolating the smaller cities too

India is making a shift from savings in physical assets to financial assets.

Post-demonetisation, financialisation of household savings has gained momentum.

Equity markets resisted a corrective cycle with great strength last year, as the DII inflows exceeded FII outflows, with the mutual fund industry witnessing encouraging inflows into equity funds, primarily through systematic investment plans (SIPs).

Still a small portion of GDP...

The assets under management (AUM) of the mutual fund industry stood at 12.8 per cent of GDP as of March 2018, which is significantly lower than the global average of 62 per cent. Even the participation of mutual funds in the equity market is only around 4 per cent, as reflected by the share of AUM of equity mutual funds as a percentage of the total market capitalisation compared with 51 per cent in Germany and 42 per cent in the US.

As such, the industry is poised for tremendous growth, considering the demographic advantage of having a high proportion of young population.

There has been a steady rise in the monthly SIP investments over the last couple of years and this trend is only a reflection of the increasing faith of retail investors in mutual funds for long-term wealth creation.

...but ever expanding assets

With an average of 9.83 lakh SIP accounts being added every month, the total amount invested via SIP mode during June 2018 has been at an all-time high of ₹7,554 crore.

Even on an overall basis, the net inflows into equity funds during June 2018 was ₹9,719 crore.

The industry has entered an unprecedented growth territory, with AUM of ₹22.86 lakh crore at the end of June 2018.

 

While the industry took almost 50 years to achieve ₹10 lakh crore AUM, it took just three years to double it.

As such, the next milestone is not far away, and this industry has only touched the tip of the iceberg.

The introduction of long-term capital gains (LTCG) tax of 10 per cent on returns from equity-oriented mutual funds did not deter the inflows into the segment.

Mutual funds remain the most tax-efficient products with a potential for higher returns over the long term.

Increasing reach

On the issue of taxation, in a country where around 6.84 crore taxpayers filed their tax returns in FY 2017-18, the number of unique mutual fund investors is just around two crore.

As such, there is vast untapped population, bereft of the benefits of mutual funds.

But the mutual fund story is not just limited to high and the middle-income group in metros. It is slowly percolating into the smaller cities too.

Assets from Beyond Top 15 cities have grown at a faster pace of 32 per cent in the last four years compared with 25 per cent from the top 15 cities.

SEBI has incentivised the participation from smaller towns, as fund houses are now allowed to charge an additional 30 bps expenses on the assets from Beyond Top 30 cities.

The writer is Chief Executive, AMFI

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